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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: Night Writer who wrote (22961)	3/22/1998 3:32:00 PM
From: Mike Gordon	Read Replies (2) \| Respond to of 97611

Night Writer: You're not easy. I'd like to take your point one by one. Let me apologize in advance to SI Members in advance if this is boring. I respond publicly intending to educate on the pitfalls and strategies of call and put writing. <Short term question. Given that CPQ will recover, are we better off in the future if: A.) The price drops to 20, and then to 17 or 18 prior to recovery. B.) The price hangs around 22 to 23 and then recovers. C.) The price runs to 30 and stays there until it recovers. D.) Total crash to $10 after DEC and first quarter combination announcements.> Lets drop C and D. I don't think these will happen in the next 4 weeks. I hope I'm not wrong. A) CPQ could drop to 20 between now and earnings announcement and shareholders meeting. Primarily due to market related reasons. I think there is too much support at 20, even at 22.5 So, if you're trying to fill a 30% position, you run the risk that it won't be filled. B) Assuming no major hits on the market or negative DEC announcements, I feel CPQ will bottom at 22.5 with average selling price of 23.5. No secret analysis, just gut feeling. You might consider a 15% to 30% fill here. CPQ at 17 or 18 would come with an uncontrolled decline in the market, an intentional misstatement of earning on CPQ's books, or leadership loss in top CPQ management. April 25 and 27.5 calls are interesting today. I think they will continue to deteriorate until earnings announcement. Depending on the content, calls could take a upward turn if the announcement is positive enough to move the stock 3+ points. Therefor a risky position on April 25 calls when uncovered. Additional risk is seen if CPQ turns positive due to short covering. Today, I would neither sell or buy April 25 calls. I am currently in a naked position on 12 calls. I stress, this is an extremely dangerous position. I sold the stock out from under the calls because I could see the down trend. So far, it was a good move. <Now with that said, I own 4 CPQ April 27.5 calls. I also sold 10 July 30 puts, and own 10 July 25 puts as insurance. > Good move for the future. By July, you should be in good shape. My only concern is the tendency for tech to stay flat during the summer. Night Writer, I only play 5 to 6 weeks out, so I'm not qualified to comment on longer positions. Concerning your comment on ' naked calls you have mucho intestinal fortitued or can watch the market more closely than I can'. My wife watches the tape all day long. She knows her stuff. Except for a two year old who demands 'Little Bear' at noon. we are full time market watchers. Where we live, we can only get CNBC on dish. Good luck next week, Mike